August 03, 2012

Sales Tax Holidays

In a post a couple of days ago, I mentioned back to school sales tax holidays. While Kansas isn’t having a holiday, bordering states of Oklahoma and Missouri are having tax holidays this weekend. Both started at midnight Friday morning and will continue through midnight Sunday night. Oklahoma will not collect sales tax on clothes and shoes which cost less than $100 per item. Missouri won’t collect sales tax on school supplies under $50, clothes under $100, computer software under $350 and computers/peripherals under $3500.

According to an article on kansasreporter.org, there is interest by at least one Kansas lawmaker to add Kansas to the sales tax holiday list next year. According to US Census figures, 7 in 10 Kansans live within an hour drive of the state boarder. While there are no figures on how many of us are taking advantage of the out of state tax holiday, Rep. Virgil Peck believes Kansas is being bleed. His district is within driving distance of both Missouri and Oklahoma. Besides Kansas retailers losing sales and the state losing the tax money on those sales, Rep. Peck is concerned about people spending more out of state than they would have locally. (Technically, Kansans who buy (and don’t pay taxes) in Missouri and Oklahoma this weekend are required to pay Use Tax on their purchases. This is done on their KS40 tax return. )

The big problem is that the sales tax holiday is a revenue loser. Oklahoma estimates they lose between $6.4 and $6.9 million each year. Taxpayers are generally buying something they would already be purchasing they are just timing their purchases differently. It’s the out of state buyers which actually help retailers the most. As more states add the holiday, the benefit decreases.

Why would a state want a sales tax holiday if they lose tax revenue and don’t significantly increase sales? Because the lawmakers like them. The sales tax holidays can make them look like they are working on taxes without actually solving tax problems. They also get to choose what items are tax free and what items are not. Can you say lobbyists?

Disclaimer

Disclaimer

A reader should seek advice from an independent tax adviser with respect to the information on this blog based on the reader’s particular circumstances. This advice is intended to be general information and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed here.